Auditor’s Independence: Its Impact on Financial Statement Towards Investment Decision Making in Nigeria

Content

Abstract

Auditor’s independence is the bedrock of the reliance of any form of audit report in accounting profession and is a major attribute to ensuring accountability however. The ultimate aim of this research work controlled or censored auditing is to assist owners of business the true and fair view of the financial statement as well as give insight into how its independence to have a positive correlation on the report they give which is being relied upon by users. The researcher employs primary data (questionnaire and personal interview) in its data collection. It was discovered or found out that closeness in terms of giving management decisions can impair an auditor’s independence. Conclusion was made that Independence has been noted is at the core of the accounting profession, the very essence that gives an auditor’s work its value. It was as well recommended amongst others that seminars and lectures should be con-ducted for auditors to enable them appreciate their profession the more to maintain their personal integrity despite the advise situation in the country, knowing fully well that a good name is better that riches.

TABLE OF CONTENTS

Title Page

Certification

Dedication

Acknowledgements

Abstract

Table of Contents

Chapter One: Introduction

1.1Background to the Study

1.2Statement of Problems

1.3Research Questions

1.4Objectives of the Study

1.5Statement of Hypothesis

1.6Significance of the Study

1.7Scope of the Study

1.8Limitation of the Study

1.9Definition of Terms

Chapter Two: Review of Related Literature

2.1Introduction

2.2 What is Auditing?

2.3 Reasons for Auditing

2.4 Objectives of Audit

2.5 The Detection of Errors

2.6 Types of Audit

2.7Audit Risk

2.8 Limitation of Auditing

2.9 Types of Auditors

2.10 Qualities of an Auditor

2.11 Auditors Qualification

2.12 Auditors Appointments

2.13 Auditors Remuneration

2.14 Rights of an Auditor

2.15 Auditors Duty

2.16 Auditor’s Liability

2.17 Types of Independence

2.18Audit Independence

2.19Perceive Independence

2.20 Independence: Cornerstone of the Profession

2.21 Difficulties of Remaining Independence

2.22 Situations under which Independence can be Impaired

2.23 Guides to Independence

2.24 Objectivity and Independence

2.25Independent and Management Advisory Services

2.26Independence and the Law

2.27 Independence and the Audit Report

2.28 Auditors Independence it’s Effectiveness

Chapter Three: Research Method and Design

3.1Introduction

3.2Research Design

3.3Description of Population of the Study

3.4Sample Size

3.5Sampling Techniques

3.6Sources of Data Collection

3.7Method of Data Presentation

3.8Method of Data Analysis

Chapter Four: Data Presentation, Analysis and Interpretation

4.1Introduction

4.2Data Presentation

4.3Data Analysis

4.4Hypothesis Testing

Chapter Five: Summary of Findings, Conclusion and Recommendations

5.1 Introduction

5.2Summary of Findings

5.3 Conclusion

5.4 Recommendations

References

Appendix I

Appendix II

CHAPTER ONE

INTRODUCTION

1.1Background to the Study

The independence of an auditor is one of the fundamental concepts to the accounting profession. Auditing as a profession arose primarily because of separation in the ownership as well as the administration of the company, we therefore have to employ a professional manager whose responsibility is to utilize the shareholders resources and produce a quantitative statement. This statement is referred to as stewardship account, in order to make the owners of the business place reliance on members of management as regard the true and fair view of the financial statement, the shareholders appoints an auditor to produce on audit, reports.

Independence is often an altitude of the mind characterized by integrity and objectively to professional works. In May, 2000, the Institute of Chartered Accountant of Nigeria reviewed an existing document issued in November, 1979 embodying a code of conduct for the members. This document titled ‘rules of professional conduct for members” because of the essential part of the rules to incoming members; the essential part of the rules is majorly on Independence of an auditor definitely must have a direct impact in the audit report. This therefore means that if an auditor’s independence is effective, what we should be expecting qualified report. The importance of the independence to an auditor cannot be over emphasized owing to the fact that it forms the crux of the profession and can be likened to the part of the auditing profession (Howard, 2010).

1.2Statement of Problem

The concept of independence is cornerstone of the accounting profession. The main aim of employing the services of an auditor to financial statement, to produce a report that will add credibility to financial statement but in practical terms, the independence is not in place. This research is to carryout an investigation to ascertain the effect of auditor’s independence on management decision making process and to proffer solutions on the ways forward to enhance auditor’s independence in Nigeria.

1.3Research Questions

Below are research questions meant to direct the study.

i.Does the effectiveness of auditor’s independence have an impact on the report given?

ii.Does the increase in credibility on the financial statement have an impact on user?

iii. To what extent do auditors know and appreciate relevance of independence?

iv. To what extent can one appraise the areas of weakness and strength with a view to making recommendation on possible improvements where necessary?

v. Of what relevant is the provision by statutory bodies and standard on auditor’s independence?

1.4 Objectives of the Study

The level of reliance on the audited financial statement by the users is not that encouraging due to the ineffectiveness, of auditor’s independence. The aim of this project is to achieve the following objective;

i. To evaluate the impact of auditors independence on audited report.

ii.To increase credibility on the financial statement to the user.

iii. To ensure that auditors know and appreciate relevance of independence

iv. To appraise the areas of weakness and strength with a view to making recommendation on possible improvements where necessary.

v. To assess relevant provision by statutory bodies and standard on auditor’s independence and as certain how credible it has been. If not to evaluate and give necessary suggestions that will help appraise the system.

1.5 Statement of Hypotheses

In order to achieve the objective of this study, the following hypotheses are raised.

Hypothesis One

Ho:Auditors’ independence does not have a direct impact on the auditor’s report.

HI:Auditors independence have a direct impact on the auditor’s report.

Hypothesis Two

Ho:There is no significant relationship between the provision of statutory bodies and auditors independence.

Hi:There is significant relationship between the provision of statutory bodies and auditors independence.

1.6 Significance of the Study

This study aims at evaluating the impact of auditor’s independence on audited report and gives insight into the effect to the users of such reports. It is also to assess relevant provision by statutory bodies and standard on auditor’s independence and ascertain how credible it has been.

1.7 Scope of the Study

This research focuses on the independence of auditors and its impact on audit report in accounting and its scope is centered on selected audit firms in the country using some audit firms in Benin City, Edo state as case study. The study covers the range between 2008 -2013 and the sample size of 30 is used for the population.

1.8 Limitations of the Study

The limitation of this study was the difficulty in getting relevant journals that is related to the area of study.

1.9 Definition of Terms

Audit: it is a process carried out by suitably qualified auditor where the accounts of business entities, including limited companies, charities trusts and professional firms are subjected to scrutiny in such details as will enable the auditor.

Auditing: It is defined as the process by which a competent qualified independent person accumulates and evaluates evidence about quantifiable information relating to a specific economic entity for the purpose of ascertaining the compliance with any relevant statutory obligation.

Auditor: Is an auditor as an expert accountant who makes an examination of accounting data in order to form his opinion as to the reliability of those data. Independence: This is the independence of the auditors mind in order to form an objective opinion of the financial statement examined by him without any direct interference from his client.

True and fair view: This means accounts prepare in accordance to the generally accepted accounting principles.

Audit Report: This is the opinion of the auditor after due examination of the financial statements. Audit report is a written summary of the findings of the auditors during their audit work along with their opinion on such findings. The report may either be the domestic report also called letter of weakness addresses to owners of the organization (in case of company’s shareholders).